5 Ways To Feel More Financially Confident During a Recession, According to Money Expert Michela Allocca
Written by
Nicole Symon
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Molly Sullivan
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Economists are predicting that the U.S. is on the verge of recession, leaving many Americans worried about their financial futures. You can’t control the economy, but there are steps you can take to feel more financially secure in a recession.
Personal finance influencer Michela Alloca offered five tips in a recent Instagram post. Here’s what she said you should do with your money during tough times.
Tighten Your Budget
Money could get tighter during a recession, so it’s worth taking a closer look at your budget. Allocca wrote, “If you aren’t tracking your expenses, it’s time to start.” Tracking your expenses will help you understand where your money goes and if there are any areas where you’re overspending.
Dig a bit deeper, too. Ask yourself whether there’s anything you could cut back on to save money. Allocca takes her advice a bit further and recommended that you “identify at least one category that you could eliminate if you needed to.” For example, you might be able to cut out restaurant meals or subscription services.
Increase (or Create) Your Emergency Fund
Allocca also suggested bulking up your emergency fund to prepare for a recession. As she said, “During recessions, cash is king.” Your emergency fund is cash that you can tap into if you suddenly lose your job, have unexpected medical bills or face other unforeseen expenses.
Over 40% of Americans don’t have an emergency fund, and nearly as many wouldn’t be able to cover a $1,000 emergency. That leaves them in a very financially vulnerable position, especially in a recession.
If you don’t have an emergency fund yet or don’t have much saved, work on saving up three months of living expenses. So, if you spend $3,000 per month on essentials like housing, transportation and food, you’d try to save $9,000 in your emergency fund. If you have already hit the three-month goal, work on saving six months of living expenses.
Build New Skills
A common concern during recessions is that you’ll lose your job. As money gets tighter for businesses, too, they may need to let some employees go. Allocca recommended honing your skillset to reduce your risk of losing your job. Specifically, she suggested focusing on transferable skills at work and developing one new skill.
So what kinds of skills should you work on? Though often overlooked, soft skills like communication, problem-solving and leadership all make you a more valuable employee to keep around. Alternatively, you can focus on learning new hard skills relevant to your industry.
Not only will these new skills help you keep your current job, but they’ll also make you a more attractive candidate in the job market. So, if your current employment doesn’t work out in a recession, you’ll still have options.
Eliminate High-Interest Debt
Going into a recession, people also worry about their ability to pay off debt. After all, money gets more scarce, and you have less left over to put toward your balances. And when you’re dealing with high-interest debt, you’re losing a lot of money in interest every month until you pay back what you owe.
That’s why Allocca recommended focusing on paying off your debt with high interest rates as soon as possible. In most cases, that’s probably credit card debt, auto loans or personal loans. Make a list of what you owe with interest rates and then put extra money each month toward the debt with the highest interest charges.
Excluding mortgages, the average consumer debt balance is over $23,000. That’s a big mountain to climb, but focusing on your high-interest debt first can make the process less overwhelming.
Avoid Lifestyle Upgrades
Now is probably not the best time to make major lifestyle upgrades like buying a new car or moving into a more expensive home. You don’t know what kind of financial situation you’ll be in a year or two from now. Given the worrying signs of a recession, it’s best to wait, according to Allocca.
She also suggested avoiding frivolous purchases whenever you can. The extra money you’d put toward unnecessary purchases and lifestyle upgrades would likely serve you better as savings right now.
You don’t want to stretch your finances too much heading into a time when economic forces could put pressure on you. If anything, now is the time to cut back on your spending so you have some wiggle room if the country does go into a recession soon.
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